But how would you respond to the argument: those that lost money in FTX weren’t consciously in on the con, but instead had (vastly) exaggerated expectations about the future of crypto?
I've said multiple times on HN that I consider blockchain to be the most economically important invention of the last 500 years, e.g.:
https://news.ycombinator.com/item?id=14633148
https://news.ycombinator.com/item?id=18574399
But the reason it's exciting is, among other things, because it should radically drive down the cost of borrowing money. So yeah, I'm probably literally on the most bullish person on crypto on HN, but that's why it's so easy for me to see how the folks chasing those double digit interest rates on FTX aren't exactly the innocent victims they're being portrayed as.
I'm hardly an economist, but even the most financially illiterate people know that interest rates should be vaguely proportional to risk.
It's just virtual tulip bulbs and South Sea Company shares. And that's all it's ever been.
The fraud is the point. It's not an unfortunate, isolated, and regrettable accident. Crypto literally raises the cost of borrowing by making it trivially easy for fraudsters to steal it, under the cover of running a "secure exchange" or a global high profile pump and dump, or worthless NFTs, or whatever the next scam du jour is.
After removing "banking as SaaS" from the value proposition, what was left was a bunch of hustlers running cleverly incentivized Ponzi schema. It's not even tulip bulbs. We're finding its black boxes, creative financing and yield farming as far as the eye can see.
None of these would have been possible without the invention of double entry accounting, because before double entry accounting you couldn't even really run anything larger than a family business because there was no way to know whether or not you were making or losing money. So it stands to reason that because blockchain is a breakthrough in accounting of a similar magnitude, in the sense that it will enable all sorts of new economic relationships that aren't possible today by radically driving down the transaction costs of doing business, that these new relationships will similarly enable all sorts of new technologies that we can't even imagine today.
To understand blockchain, you need to go back and read all the books on the history of double entry accounting in order to understand the changes that it enabled within society. But these changes aren't going to happen over night, they'll take a couple hundred years to play out, in the same way that it was a couple hundred years between the invention of double entry accounting and the height of the Dutch East India company or whatever.
What? I thought the benefit of double-entry was that it makes fraud and inconsistencies easier to catch, not detection of profit per se (which single-entry can surface).
One of the key principles of double entry accounting is denominating profit and loss in a fungible currency, rather than just recording the number of goats you own or whatever. Double entry is actually the codification of several different best practices, it’s more than just having two sides of the ledger. But even with just the fraud part, you are very limited on the number of employees you can have if you don’t have any way to know if they’re stealing from you. That’s why even though e.g. Ancient Rome had thousands of fast food restaurants, they didn’t have franchises like McDonalds.
There are many reasons that they didn’t have McDonalds-like franchises, and none of them have to do with accounting. Those kinds of franchises didn’t exist in the modern world until the 20th century; they are product of many elements of modern culture (and modern approaches to business). What the heck would a franchise even do for someone in Ancient Rome? It’s not like there are massive chicken suppliers or industrial-scale bakeries that produce standardized food products to sell. Every restaurant needs to source local suppliers directly anyways. Fast food chains make no sense without industrialization, among many other things (bookkeeping being the least of them).
I estimate that approximately 80% of people would not even understand the claim you're making, let alone be able to evaluate how true it is.
Its not. Blockchain is an immutable ledger only, there's nothing in the original blockchain spec (not Satoshi's spec, Satoshi didn't make blockchain. he kinda stole it, like he didn't cite his sources very well) that mathematically enforces any sort of double entry accounting feature like ledger immutability is mathematically enforced. But blockchain is useful and interesting for other reasons. Lets set that aside since you're clearly talking about crypto, which is also not a replacement for double entry accounting for its own myriad of reasons including but not limited to excessive power consumption, reliance on a consensus of random computers (of which anyone could own 51%+ and effectively have full control over the chain), zero recourse for lost/stolen funds, unpredictable value, poor security features (true), no way to correct errors (without compromising the data structure), and the list does go on.
Even if it was a panacea for the burden of having to have an accounting department (the horror), it can't have the same economic impact as double entry accounting like you claim since double entry accounting literally didn't exist before double entry accounting. Crypto is just automated (until there's problems, and there's always problems) double entry accounting, its literally still double entry accounting and will still even need to be audited by real accountants (ugh, stupid laws, right?) LOL.
Not really. If we take nominal interest rate = real rates + inflation expectation + credit spread, then only the (counter party dependent) credit spread reflects riskiness. Real rates reflect an equilibrium of time preferences.
I got my mortgage for less than 2%. I can't see how crypto is going to enable negative rates.
(Historical factoid: the world's oldest bank in the modern form is up to 550 years old https://en.wikipedia.org/wiki/Banca_Monte_dei_Paschi_di_Sien... )